Foreign direct investment and institutional quality: Some empirical evidence
Based on a panel data analysis of 164 countries from 1996 to 2006, we examine the impact of institutional quality on foreign direct investment (FDI) levels and volatility. We find that good institutional quality matters to FDI. We provide evidence that institutional quality has a positive and significant effect on FDI. More specifically, we find that a one standard deviation change in institutional quality improves FDI by a factor of 1.69. Ceteris paribus, institutional quality is negatively and significantly associated with FDI volatility which may have an adverse effect on economic growth per Lensink and Morrisey (2006). Thus, our results suggest that if there are institutional determinants of FDI volatility and if such volatility is associated with lower economic growth, then the usual policy prescription of attracting FDI into countries by offering the “correct” macroeconomic environment would be ineffective without an equal emphasis on institutional reform.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:21:y:2012:i:c:p:81-89. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.